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International Journal of Engineering, Business and Management (IJEBM)
ISSN: 2456-8678
[Vol-6, Issue-2, Mar-Apr, 2022]
Issue DOI: https://dx.doi.org/10.22161/ijebm.6.2
Article DOI: https://dx.doi.org/10.22161/ijebm.6.2.5
Effects of Inventory Control Management Systems on
Organization Performance in Tanzania Manufacturing
Industry- A Case Study of Food and Beverage
Manufacturing Company in Mwanza City
Irene Omari Mbugi, Sr. Dr Deusdedita Lutego
Department of Finance and Accounting, St. Augustine University of Tanzania, Mwanza Campus, Tanzania
irenembugi1@gmail.com
Received: 28 Jan 2022; Received in revised form: 09 Mar 2022; Accepted: 18 Mar 2022; Available online: 29 Mar 2022
©2022 The Author(s). Published by AI Publications. This is an open access article under the CC BY license
(https://creativecommons.org/licenses/by/4.0/)
Abstract— This study was about the effect of inventory control management systems on organization
performance in Tanzania manufacturing industry: a case study of food and beverage manufacturing
company in Mwanza City. The specific objectives of the study were to: determine the types and purposes of
inventory control management practices followed ascertain the influence of inventory control management
practices on organizational performance and determine how technology adopted in operationalization of
inventory control management practices affect organization performance. In order to accomplish the
objectives, qualitative approach methodwas adopted. Using purposive sampling, five participants in the
inventory and production department were selected and interviewed. Data was analyzed using content
analysis techniques with the aid of Nvivo Qualitative Analysis software. Other data was collected from
documentary review company and industry published reports. The findings of the study revealed that the
food and beverage manufacturing company had evidence of different types of inventories which included
raw materials, work-in-progress and finished goods managed under FIFO system for cost reduction and
production efficiency. It was also evident that the company carried inventory control management using
perpetual inventory system done on periodic basis and inventory system is combined with acomputerized
database of inventory quantities at various locations for up-dating in real time by store and warehouse
using barcode scanners. It was also revealed that inventory control management system using principles of
Economic order quantity [EOQ]affects organizational performance in terms of cost reduction, production
efficiency, flexibility and profitability. The study recommends an implementation of new practices/models
such as Vendor Managed Inventory (VMI) in the company’s inventory control management.
Keywords— Inventory Control Management Practices, Organizational Performance, EOQ.
I. INTRODUCTION overcome the challenge by utilizing sound control
Managing assets of kinds by organizations across the techniques or systems suchas economic order quantities
world can be viewed as an inventory challenge to public as (EOQ) model to ensure effective inventory supervision,
well as private organizations. This is because both public which in turn may lead to purchasing favorable quantities
and private organizations tend to experience several of raw materials for input in the production process.
difficulties in managing their inventories. The most However, is mostly afforded by large organizations due to
observed challenge is that poor inventory can lead to under large capital investment and use of sophisticated
stocking while over stocking may result in increased total technology.
costs of inventory (Koumanakos, 2008). Organisations can
https://www.aipublications.com/ijebm 56
Irene et al. / Effects of Inventory Control Management Systems on Organization Performance in Tanzania Manufacturing
Industry- A Case Study of Food and Beverage Manufacturing Company in Mwanza City
Regardless of level of sophistication of control system, it is Countless manufacturing establishments have adopted
argued that inventory has to be leveled down in order to inventory management systems in their efforts to survive
maximize storage costs and to boost up inventory to the in the markets as well as to improve their business
level of customers’ demand in the target market (Medard operations. However, in what way the inventory control
2013; Atnafuand Balda 2018). One of the plausible ways is schemes they apply affect organizations’ performance of
to avoid placing a lot of capital in inventory but this may manufacturing companies, in particular food and beverage
subsequently lead to dwindling of profitability and manufacturing companies in Tanzania has not been
cashflow. It thus implies that the chain supply inventory studied.
personnel need to have competence in procurement Inventory control management's impact on organizational
process as deficiency of or limited facts and skills in efficiency has been a contentious topic to both scholars
procurement. and researchers as they hold different views and findings
Furthermore, an inventory control system is vital because about its influence on an organizational performance.
it ensures that assets and stock are adequately managed Mukopi and Iravo (2015), for example, discovered that
and that precise demand forecasting is maintained to inventory management had a favorable impact on
minimize unexpected procurement operations. This will performance. Similarly, Mogere, Oloko and Okibo (2013)
help the company execute effective procurement found that there is a substantial link between inventory
procedures that meet market demand and supplier factors control management and organizational performance. Both
(Brigham & Gapenski, 2013).Agus & Noor (2010) also studies were conducted in Kenya in the setting of sugar
stated that precise forecasting of demand allows the industry and tea industry respectively. However, a
business to reduce operating expenses, improved Nigerian study by Otuya and Eginiwin (2017) among
efficiency and on time supply of products and services for SMEs in Delta State, revealed there was no direct link
the future requirements by fulfilling the growing between the two variables of inventory control
expectations of customers. This leads to increased management and organizational performance. In Nigeria,
consumer fulfilment as the outcome of the best value of certain empirical research have also been conducted in the
products and services provided, also improved contexts of engineering firms, manufacturing and cement
organizational effectiveness. In a similar vein, previous industries but none in the food and beverage industry
studies have established that improper inventories control (Eneje, Nweze and Udeh (2012); Duru, Okpe & Udeji
management may cost an organization a loss ranging from (2014).
25 percent to 40 percent of the expected value, resulting In the context of Tanzania exists few empirical studies on
from lost sales as a direct consequence of customer inventory control systems such as that by Ondyeki (2019)
dissatisfaction (Makweba and Xi, 2009). Thus efficient focused on inventory control system of assets and their
inventory control system is part and parcel of supply chain safety in public secto while Medard (2017) focused the
activities to enable the organization to have sustainable relationship between inventory control and management of
competitive edge in the market and to improve firm’s assets also in public sector. Besides, the majority of studies
profitability as well. In spite of the importance of for example, Otuya & Eginiwin, 2017; Otuya &
inventory control systems in organizations, such as Eginiwin2017; Atnafuand Balda, 2018) have adopted
Tanzanian manufacturing firms including food and quantitative approach and have not obtained deep insights
beverage production companies, there is paucity of of how inventory control systems contribute to
empirical research of the effect of inventory control system organizational performance and yet manufacturing food
on organizational performance. and beverage firms have intensive capital in inventories
Statement of the Research Problem whose management is vital to company’s sustainability in
Manufacturing firms have become less competitive in the a competitive market. Hence, this study fills the
market due poor inventory control systems. Tanzanian knowledge by investigating using qualitative approach the
manufacturing beverage companies such as those found in effects of inventory control management systems on
Mwanza City are facing competition from other organizational performance in Tanzania manufacturing
manufacturing companies in other parts of the country industry in the selected food and beverage manufacturing
where they need to assume more effectual techniques of company in Mwanza City. Based on these gap identified
regulating and managing inventory through removing and discussions made on empirical and theoretical
waste in the production process, reducing holding costs, evidences, the following basic research questions were
ordering costs and many others. formulated.
https://www.aipublications.com/ijebm 57
Irene et al. / Effects of Inventory Control Management Systems on Organization Performance in Tanzania Manufacturing
Industry- A Case Study of Food and Beverage Manufacturing Company in Mwanza City
(i) What influence inventory control management time when inventory Items are collected, traded from
practices have on organizational performance of the inventory, transported as of one area to alternative,
food and beverage manufacturing company in retrieved from inventory, and discarded. (En-kanselu
Mwanza city? 2008). The author further points out that, some
(ii) How technology adopted in operationalization of the establishments prefer perpetual inventory control systems
inventory control management practices affect because they deliver up-to-date inventory information and
organizational performance in the food and beverage better hold negligible manual inventory counts. They are
manufacturing company in Mwanza city? also chosen to because they are considered fast an accurate
in capturing inventory on continual basis when they are
II. LITERATURE REVIEW they are properly utilized and managed (En-Kanselu,
2008). For the matter of emphasis, Chopra (2015) adds that
2.1 Theoretical Review perpetual inventory control performs better when used
According to Kafyetta (2016), an inventory control system together with a database of inventory amounts by
management is a arrangement that systematizes all storeroom staffs using barcode scanners.
inventory management activities. These systems are In spite of the importance, they have for the better
described to integral successfulness of any business performance of the organization, perpetual inventory
organization and are principally used to proficiently control systems have observed short comings. First, these
capture stock movements using both hardware and systems are technologically dependent as it is impossible
software gears in supply chain. Inventory management, to maintain them manually. Instead, they require technical
according to Saleemi (2004), is a critical issue in every equipments and software, which results in a large rate of
firm that should not be disregarded. The goal is to save execution, particularly for businesses with a great number
precious investment while lowering expenses and of locations or warehouses. In addition, they need
enhancing affordability. He goes on to say that the major necessary periodic maintenance and upgrades, which also
goal of inventory control is to reduce lazy time produced add extra cost.
by stocks shortages and non-availability of stocks, as well Second, because they do not employ a consistent
as inventory carrying cost expiration losses. inventory system, a perpetual inventory system may cause
2.1.1 Types of Inventory Control Systems recorded inventory to differ from real inventory over time.
Inventory control systems are viewed as necessary Third, since so much time occurs between physical
components in day – to- day operations of an organization, inventory counts, they make it problematic to discover
whose significance to enhance organizational performance. where inconsistencies in inventory amounts arise when
According Ali et al (2014), the following are types of employing a periodic inventory management system (En-
inventory control system: shipping, purchasing, receiving, kanselu, 2008). As a result, inaccuracies, stolen products,
warehouse storage, turnover, tracking, and reordering of and inadequately scanned objects have an impact on the
inputs. Nevertheless, there is no a common ground among inventory that is recorded creating an expected deviation
managers and scholars to what makes the difference from the actual inventory counts. Therefore, the choice
between stock organization and stock control systems, as and use of any inventory control system need careful
an effective inventory control system entail inventory consideration considering strengths and weaknesses it has,
management and vice versa to increase supply chain and on top of this its impact on an organizational
productivity and efficiency so that the correct inventory is performance.
available at the right time to satisfy client demands (Adoga 2.1.1.2 Periodic Inventory Systems.
& Valverde, 2014). From En- Kanselu’s (2008) On the side of periodic inventory control systems, they do
perspective there are two forms of inventory control not pathway inventory on a daily basis. Instead, they are
systems which organizations can employ; explicitly, said to consent establishments to comprehend the opening
perpetual inventory control systems and periodic inventory and finish level of inventory within certain duration of
control systems. En- Kanselu further informs that within time. These types of inventory control systems capture
these two systems, there are two sub systems of inventory inventory by employing actual inventory amounts. When
control management systems: barcode systems and radio actual inventory is whole, the stability in the purchases
frequency identification (RFID) systems. account moves into the inventory account and is
2.1.1.1 Perpetual Inventory Control Systems accustomed to concur with end inventory cost. They are
The perpetual inventory control system is concerned with user friendly as there are few problems of using a periodic
regular updating inventory records and accounts at any inventory system (Chopra, 2015).
https://www.aipublications.com/ijebm 58
Irene et al. / Effects of Inventory Control Management Systems on Organization Performance in Tanzania Manufacturing
Industry- A Case Study of Food and Beverage Manufacturing Company in Mwanza City
2.1.1.3Barcode Inventory Control Systems substances in transit as soon as the purchase order is
Barcode inventory control systems are regarded more pressed. Following that, the goods is sent, delivered, and
precise and effective than physical inventory operations. "logged" according to the shipment procedure. However,
When utilized as fragment of an entire control inventory the VMI concept is ideally used to the implementation of
system, barcode systems instantly update levels of inventories at retailer’s distribution middle. The advantage
inventory whenever labors scan them using a barcode of VMI system is that customers are able to expel stock
scanner or mobile device. En-kanselu (2008) describes the outs because suppliers may have replenished their
advantages of using bar-coding in inventory control system inventories (Potilen & Goldsby, 2003).
management procedures, such as maintaining precise data 2.1.2.2 Economic Order Quantity (EOQ)
of all inventory transactions, eliminating time-consuming According to Ogbo (2011), the economic Order quantity
data errors that may occur frequently with manual or paper (EOQ) refers to ordering amounts that reduce the cost of
systems, and minimizing manual data entry errors. inventory stability while maintaining pricing in proportion
2.1.2 Inventory control Management Practices/ to re-order costs EOQ requires the following assumptions,
Techniques according to Onwubolu et al. (2006): (i) Demand is known
There are several inventory control management practices and constant; (ii) Lead-time is known and constant; (iii)
or models underlying management of inventory control Inventory is received in one batch, at one time; (iv)
system for the purpose of having the correct quantity of Quantity discounts are not possible, (v) The only variable
inventory on hand to run a profitable and cost-effective costs are the cost of placing an order and the cost of
business. It is said to apply mostly in large-scale holding inventory; and (vii) Stock-outs can be completely
businesses, such as manufacturing industries. According avoided if orders are placed at the right time. With these
to Adamu et al (2014), they are said to apply mostly assumptions inventory usage over time has a saw tooth
effective in large-scale business organizations, such as type of characteristic which means that the graph of the
manufacturing industries. They include Stock Review, inventory usage undergoes gradual variations.
Automatic Replenishment, ABC Inventory Model, Just-In As compared to other inventory control management
Time (JIT) Inventory, Economic Order Quantity EOQ) and practices, the EOQ method renders, to some considerable
Vendor Managed Inventory. extent, complications in application of it. The reason given
Stock review is construed to be the easiest inventory is that it requires an organization to understand the yearly
control system management technique which is found to usage in units, ordering value in greenbacks according to
be more favourable in small- scale organizations. Its order, annual sporting cost charge, unit value in dollars,
implementation entails a frequent review of existing and order amount in gadgets are the following records.
inventory against anticipated future demands. (Adamu et Nevertheless, the merit attributed to EOQ method is that it
al, 2014). The stock review process is manually, yet in strives to locate the order quantity that has the minimum
certain cases an automated stock review is used to total price of carrying the stock for the purpose of
calculate the minimum stock level in order to assure minimizing the holding costs (Mandal, 2012). In other
continual inventory checks and supply reordering to satisfy words, EOQ is cost effective as it helps an organization to
minimal levels. Its only demerit is that it is labour- cut down business running costs. Therefore, it is a viable
intensive and also prone to errors; therefore, it needs much inventory control management practice which can be used
care in its application (Adamuet al, 2014). by an organization in order to attain high profitability.
2.1.2.1 Vendor Managed Inventory They are assumptions necessary in basis of EOQ.
Vendor Managed Inventory (VMI) this is a supply network 2.1.2.3 Just-In Time (JIT) Inventory
approach in which the contractor or supplier manages the Just-In-Time technique is construed as aggregated
buyer's inventory (Smaros et al., 2003). For the purpose of practices that are used to do away with waste wherein
tracking the customer's stock level, the vendor is granted materials, parts, and in place ordering immediately
access to its purchaser's inventory and demand different items needed to meet instantly manufacturing
information. Furthermore, the vendor has the ability and requirements (Mazanai (2012). These large-scale business
duty to refill the purchaser's inventory in accordance with methods are thought to cover the full inventory supply
the inventory control principles and objectives that have chain. Shared product design with suppliers and customers,
been mutually agreed upon (Smaros et al., 2003). It entails moving away from incompatible sourcing nearby
placing purchase orders in accordance with a long-term suppliers, minimal machine determined times, and overall
inventory degree schedule and shared forecast data. A preventative protection are all identified components of
boost transport observer notifies the consumer of JIT (Mazanai, 2012).
https://www.aipublications.com/ijebm 59
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